Looking to the Future of Public Service Television Broadcasting Looking to the Future of Public Service Television Broadcasting Consultation Publication date: 30 September 2004 Looking to the Future of Public Service Television Broadcasting Contents Section Page 1 Introduction and summary of findings 2 2 The role of social change 6 3 Public Service Broadcasters confront the digital world 13 4 The impact of technology change on broadcasting 19 5 Impacts on consumer preferences and behaviour 29 6 Broadcasters and the market 42 7 What might the future look like? 59 1 Looking to the Future of Public Service Television Broadcasting Section 1 1 Introduction and summary of findings 1.1 This paper presents the work conducted by Ofcom in looking to the future of public service television broadcasting (PSB) in the UK. Our focus has been on addressing the challenges to PSB against the backdrop of the fundamental and potentially disruptive change brought about by the migration to all-digital television. 1.2 Our overall conclusion is simple: by the end of this decade, the existing ecology for the provision of public service broadcasting will be under real threat. Ongoing changes in society, in the way people consume media and watch television, in the competitive forces facing the existing main networks, will conspire to mean that the current arrangements for securing the provision of public service broadcasting will be inadequate to ensure the maintenance – let alone the strengthening – of PSB in the UK. 1.3 Traditionally, the UK broadcasting ecology has struck a delicate balance between the sources of funding, ownership and regulation. These factors have interacted to create a mutually reinforcing system. But this system is beginning to unravel, and needs reinvention in order to be fit for purpose in a fully digital world. 1.4 The following figure shows how we have structured our analysis. We consider, first, the key changes taking place in society, platforms and technology; and, second, assess the implications of these for viewers and broadcasters in the market. The overall goal of this analysis is to examine the outlook for the future of public service television broadcasting. Each of these areas is considered in turn in the rest of this paper. MacroSocial Change trends Broadcasters Platform Outlook for Take- up PSBs Consumers Technology trends The importance of social change 1.5 The composition, attitudes and concerns of UK society are very different from those which, for example, witnessed the launch of Channel 4 and multichannel television twenty years ago. These changes in society impact on PSB in two principal ways. First, we want different types of television and we watch it in ways different to the mid- 1980s and before then. Second, and perhaps more subtly, these changes in society are also affecting the way we think about what PSB should be. 1.6 Important developments in this area include the growing affluence of individuals, the fragmentation of the traditional family unit, the growing diversity of UK society, changing attitudes towards membership of communities and other social networks, 2 Looking to the Future of Public Service Television Broadcasting and the rise of an ‘entitlement’ culture. What effect are these changes having on the very purposes and characteristics of PSB? Section 2 considers this question. 1.7 These changes can be seen in the purposes of PSB put forward elsewhere in our Phase 2 report. For example, as engagement with the political process and politicians breaks down, television has a continuing and important role in providing accurate news, information and analysis of current issues. 1.8 Reflecting and strengthening our cultural identity is a growing challenge as local and regional allegiances shift and the concept of being British becomes more complicated and multi-dimensional. And as the ‘nuclear family’ (the Oxo family perhaps) is less representative of the diversity of household units, awareness of alternative perspectives – through programmes which reflect the lives of different people and communities within the UK – is coming to the fore as an important ingredient of PSB. Confronting the digital world 1.9 Shifting the focus away from broader social trends and towards changes in the television sector itself, Section 3 looks at prospects for the continued growth of digital television and progress towards full digital switchover. Why is the growth of digital television so important for PSB? There are two fundamental reasons. 1.10 First, for all of the PSBs, audiences in digital homes are substantially smaller than in analogue homes (for example, ITV1’s share in multichannel homes in June 2004 was 18%, compared with 28% in analogue-only households1). As digital take-up continues, all-homes audience share figures will inevitably tend towards multichannel home levels. By 2010, even without any confirmation of a definitive move to full switchover by Government, we expect that 78% of all UK households will have digital TV. 1.11 This downward pressure on audience shares is something to which the main terrestrial broadcasters will have to respond. They will need to find new ways of bringing audiences to the programmes they show – either on their main channels, or perhaps via new digital channels. They will need to look to different ways of scheduling and promoting their programmes. 1.12 The second fundamental importance of the growth of digital TV is both less obvious but also more profound for the provision of PSB by the commercial broadcasters. As analogue audiences disappear, so largely does the basis for the historic commercial PSB consensus, namely that ITV and Five have been content to broadcast several types of PSB programming in return for privileged access to analogue spectrum and the audiences this confers. Privileged access to DTT capacity and EPG prominence are likely to be much less valuable to them in the future. When there are no more analogue viewers, why should commercial broadcasters continue to deliver on PSB when there is little upside left for them in the deal? 1.13 Section 3 summarises the digital take-up projections published in Ofcom’s April 2004 report, “Driving Digital Switchover”. Since then, Freeview’s popularity has continued to exceed even the most bullish predictions; BSkyB has announced its intention to re- introduce a free to view digital option; and several major players have begun to talk with increasingly serious intent about launching mass-market TV services over digital subscriber lines (DSL). Moreover, the indications are that Government is moving towards a full switchover programme that could start by 2008. 1 Source: BARB 3 Looking to the Future of Public Service Television Broadcasting The importance of technology trends 1.14 In section 4, we delve into more detail on the implications of digital broadcasting. The competitive pressures brought about by the growth of digital TV form part of a complex and, to date, uncertain story. Increasingly sophisticated electronic programme guides (EPGs) and personal video recorders (PVRs) add powerful new functionality to the consumption of television. Second generation interactive services offer the potential to change the way viewers relate with programmes as well as the possibility of new revenue sources for broadcasters. 1.15 And further into the future, the emergence of on-demand television and mobile broadcasting could well have significant implications for PSB. Perhaps most interesting are early developments in payment mechanisms which could in time create a range of different ways in which viewers could pay for the television they watch. The idea of genuine ‘pay as you go’ TV – where each programme is clearly priced and viewers only pay for the programmes they actually watch – is something which technological developments are bringing closer to reality. This sort of payment method could radically affect the continued debate about the BBC licence fee. Impact on consumer preferences and behaviour 1.16 Section 5 starts to bring the previous discussions together by looking at the ways in which social change, digital take-up and new digital services are likely to affect viewers’ consumption of television, and public service television in particular. The effect of audience fragmentation should not be underestimated: five years ago, 85% of all viewing in the UK was to the main five channels; by the end of this decade it could be approaching 65%. As well as the commercial effects for broadcasters, this trend will inevitably affect attitudes towards, and consumption of, PSB. Viewing of the five terrestrial channels among those aged 35 and under is already below 50%. And, come 2012, people of university age and below will have little or no idea of what television was like when there were only four or five channels on air2. 1.17 With respect to PVRs, overall we expect the growth in take-up of PVRs to be steady this decade but that they will not be ubiquitous by 2010. By the middle of the next decade, however, PVRs are likely to be as commonplace as video recorders are today. PVRs unquestionably have disruptive potential. The two most important behavioural implications are ad avoidance, with obvious implications for the commercial broadcasters, and the effect on scheduling. The proportion of viewing of live television in PVR homes seems to fall so dramatically that, as PVRs become the norm, the predetermined schedule could become relatively unimportant for many viewers. 1.18 This could create both threats and opportunities for the public service broadcasters. For instance, PSB programmes will not just have to compete with all of the other programmes on television at the time, but all of the other programmes stored on viewers’ PVRs. However, it could also create new opportunities for PSB content to be stored and watched as an active choice at the viewer’s preferred time.